Companies and countries are scrambling to adjust to a strange new world created by a decade of economic retrenchment and an upswing in populism

By Bob Davis and Jon Hilsenrath

After World War II, the global economy rose on a wave of trade and finance, lifting hundreds of millions of people out of poverty in developing countries and providing rich countries with cheaper goods, lucrative investments and hopes for a more peaceful planet.That tide is now receding.Nine years after the financial crisis, global trade is barely growing when compared with overall economic output. Cross-border bank lending is down sharply, as are international capital flows. Immigration in the U.S. and Western Europe faces a deepening public backlash.Nationalist politicians are on the ascent. On Wednesday, the U.K. formally started proceedings to remove itself from the European Union. In the U.S., President Donald Trump pulled out of a Pacific trade pact on his first working day in the Oval Office, declaring, “Great thing for the American worker, what we just did.”For traditional economists, globalization is a pathway to prosperity. Rooted in the works of Adam Smith in 1776 and David Ricardo in 1817, the classical canon has embraced the idea that trade is the basis of wealth, because it makes nations more efficient by allowing each to specialize at what its workers do best.Few of them fully grasped globalization’s downsides in a modern economy. Tying together disparate nations economically also expanded the labor pool globally, pitting workers in wealthy nations against poorly paid ones in developing nations. That greatly boosted the fortunes of the world’s poor, but also created a backlash in the U.S. and Europe. At the same time, freeing financial flows led to debilitating financial excesses that ended in crisis.

Falling Behind

Globalization, as measured by annualized, inflation-adjusted export and GDP growth, has gone through three distinct cycles. It is now slowing.

“Globalization is in retreat,” Larry Fink, the chief executive of the big investment firm BlackRock Inc., said in a February memo to employees, outlining a new corporate strategy. “We need to be German in Germany, Japanese in Japan and Mexican in Mexico.”An earlier era of globalization, which stretched from 1870 to 1913, ended when the world descended into war. Rising trade barriers later played a role in the Great Depression of the 1930s. The present era may not turn out as catastrophically, but nations, companies, multilateral institutions and ordinary citizens are already scrambling to adapt to a world with bigger barriers to trade and finance as blowback builds.Big banks, such as Citigroup and HSBC, have reduced their global footprints. Industrial firms like General Electric are developing strategies for a more localized world. Guardians of globalization, like the World Trade Organization, struggle with challenges from China and other emerging powers. Poor nations are finding it harder to count on exports for economic development. Wealthy nations face less hospitable overseas markets, while their workers grapple with the demands of automated workplaces.Critics of globalization say a slowdown in cross-border trade and finance will help ease pressure on wages of unskilled workers in wealthy nations, stem the threat of financial bubbles and reduce the influence of multinational companies in developing nations. “Maybe the U.S. will supply more of its demand by itself,” said Clyde Prestowitz, president of the Economic Strategy Institute in Washington, D.C., who has long urged the U.S. adopt more aggressive trade policies. “That could be a good thing and create jobs.”During the globalization epoch that started after World War II, trade growth usually far outpaced—and helped drive—overall economic output. Now it is barely keeping up. The slowdown has long outlasted the financial crisis of 2007 to 2009, which helped set it off. Between 2011 and 2015, the value of global merchandise exports contracted 10%, according to the WTO, the largest drop over a four-year period in post-World War II history, driven in part by tumbling commodities prices. Merchandise export growth over a 10-year time frame is also the slowest of this era.

“We have a deflationary mind-set,” Jakob Stausholm, chief financial officer of Maersk, the Danish shipping giant, told investors in February, while reporting a $1.9 billion loss. A few days earlier a court in Seoul declared that Hanjin Shipping Co., the world’s seventh-largest shipper, was heading for liquidation.Among the hottest trends in the industry last year was the dismantling of giant container ships for scrap metal—862 in all—along the beaching yards of Pakistan, Bangladesh and India.Annual movement of capital across borders—in the form of stock and bond purchases, foreign direct investment and lending—fell more than two-thirds, to $3.3 trillion in 2015 from $11.9 trillion in 2007, according to McKinsey & Co. Overseas bank lending, particularly from Europe, has been hard hit. The stock of cross-border loans held at banks around the world contracted 21%, from $35.5 trillion in 2008 to $28.2 trillion in the third quarter of 2016, according to the Bank for International Settlements.Peterson Institute for International Economics trade economist Gary Hufbauer calculates that U.S. output in 2016 was $2 trillion greater than it otherwise would have been thanks to greater trade and financial integration since 1950. Slowing the pace of globalization will actually slow U.S. income gains, he argues.No less is at stake for a country such as Ethiopia, which has averaged growth rates in excess of 10% for the past decade as part of a push toward industrialization and greater international exposure. The country has little to fall back on if its globalization bet sours.Hoping to emulate China’s ride on the globalization wave, Ethiopia is building a half-dozen manufacturing zones to produce garments, textiles and shoes for multinational firms, along with railroads and power plants. The construction spree, which keeps the air in Addis Ababa thick with dust, has created rising external debt loads, which jumped from $2.3 billion in 2006 to $20.4 billion in 2015, according to the World Bank.Ethiopia’s prime minister, Hailemariam Desalegn, says the debt is a price he is willing to pay. “If you want to move in an easy way, then you can’t achieve double-digit growth,” he said in a recent interview. “We have to carefully manage it, but there is a way out also. We have a huge potential in terms of exports.”The lethargic recovery from the global recession, especially weak demand for capital goods and big investment projects, helps to explain the global trade slowdown.Protectionism is another cause. Global Trade Alert, a trade monitoring group, counts nearly 7,000 protectionist measures enacted world-wide since the recession of 2009. About half of the items are aimed at China.It has been 23 years since the completion of the last global trade deal in 1994 and no other is on the horizon. Since 2008, the International Monetary Fund reports, tariff reductions have been “minimal,” after falling by about 1 percentage point a year between 1986 and 1995 and 0.5 percentage points annually for the following 13 years.Multinational companies used the 1990s and 2000s to build global supply chains—for instance linking rubber plantations in Malaysia to tire manufacturers in China and retailers in the U.S., or coffee growers in Colombia to Starbucks restaurants.These webs of commerce supercharged trade but have begun to retrench, as companies localize their production and import fewer components for assembly. The World Bank says global supply chains stopped growing around 2011, after expanding about 4% annually for the previous two decades.

General Electric Corp, which since the 1980s has expanded its global footprint, says it’s time for a “bold pivot” in strategy to focus on regional centers. In explaining the move last year, GE Chief Executive Jeff Immelt said he would prefer to operate by free-trade principles, but “a localization strategy can’t be shut down by protectionist politics.”In practice, that means GE is building up its manufacturing capacity in China and India and other big markets to supply customers there, rather than counting on exports and global links. As part of the strategy, GE signed a deal in 2015 to build locomotives in India, rather than relying on a global production site in the U.S., as it once did.Surveying the global economy from Beijing, where he co-owns eight electronics and medical equipment factories, Dwight Nordstrom, chairman of Pacific Resources International LLC, says he is “waiting to see how the politics shake out” before building any Chinese plants aimed at the export market.That’s because local-content rules may require firms like his to build factories in different countries. “We may be forced to have more factories than makes economic sense,” he says.China, once an assembly platform that sucked in commodities and manufactured goods from abroad, put them together and reshipped them, is now producing much of what it needs domestically.Benjamin Dolgin-Gardner, founder of Hatch International Ltd., an electronics manufacturer in Shenzhen, China, says he now uses Chinese-made LCD screens rather than ones made elsewhere in Asia for the tablets he produces. Memory chips for MP3 players are also made in China rather than imported from Japan and South Korea.“China is increasingly cannibalizing supply chains,” says Alex Wolf, a London economist at the investment firm of Standard Life Investments, reducing exports from Korea, Taiwan and other nations whose economies are tightly linked to China’s.The reaction to the financial crisis in many countries included new banking rules, adopted globally, which require banks to hold bigger capital buffers against securities and loans. That has cut into their willingness to take risk across borders.Regulators in China, Cyprus, Iceland, Brazil and other countries imposed capital controls to limit the waves of potentially destabilizing money washing into and out of their financial systems. In all, 31 out of 108 countries tracked by economists Menzie Chinn and Hiro Ito became less open to global capital flows between 2008 and 2014, while 13 became more open. That’s a sharp reversal from the five-year precrisis period, when 40 countries became more open to global capital flows and 12 became less open.Europe is the epicenter of the global lending crunch. Hungary privatized most of its banks after the fall of Communism in 1989, drawing investors from Austria, Italy, Belgium and beyond. By the mid-2000s, Hungarian homeowners had become avid consumers of mortgages issued by Austrian banks denominated in Swiss francs, emblematic of the rapid globalization of European finance.After the financial crisis, the Swiss franc soared, pushing up the cost of those mortgages. Nearly one-third of Hungarian borrowers went 90 days or more delinquent on their mortgages, inviting a political backlash. Viktor Orban ’s nationalist Fidesz party won parliamentary elections with a landslide in 2010 and Mr. Orban set out to increase Hungarian ownership of the banking sector to at least 50%. His administration imposed taxes and fees on the sector and demanded banks convert Swiss franc loans into local currency denominations. Foreign bank lending contracted for eight straight years through 2016, according to the Institute for International Finance, a banking trade association in Washington.As foreign banks departed, the country’s economy minister, Mihaly Varga, told local reporters that the policy “boosts economic sovereignty.” A 2016 review by the IMF, while lauding Hungary’s rebound from the recession, said the government had simply shifted risks from private hands to the public sector, because the Hungarian government took big stakes in banks and other companies.

In wealthy nations, the big hope is that a reversal in globalization will lift wages of unskilled workers by reducing competition from low-wage nations. That hasn’t been the case so far. Globally, wage growth slowed to an average 2.1% in the past five years, compared with 2.4% in the five years leading up to the 2007-2009 financial crisis, according to the International Labor Organization.In the U.S., wages and salaries of workers rose 2% a year in the past five years. That’s down from 2.9% in the five years before the crisis.That hasn’t stilled globalization’s many critics. “Globalization has made the financial elite who donate to politicians very, very wealthy,” Mr. Trump said last June at a Rust Belt stop in Pennsylvania, “but it has left millions of our workers with nothing but poverty and heartache.”

LONDON – The Dutch are famous for building dykes that hold back the tides and storms sweeping across the Atlantic. Have the Dutch now done it again, holding back the wave of populist politics that seemed to be threatening Europe after last year’s Brexit referendum and Donald Trump’s victory in the United States?

The unexpectedly weak performance of Geert Wilders’ Freedom Party (PVV) in the Dutch election on March 15 seems to suggest this. Despite predictions running as high as 25% of the popular vote for Wilders, the PVV gained only 13%. If voters in France’s upcoming presidential election prove closer to the Dutch than to Americans and Britons in their susceptibility to xenophobia and protectionism, their decision will have global implications for politics, economics, and the ideology of global capitalism.

A swing back to the center in continental Europe would strongly suggest that the unexpected victories for populist and anti-globalization movements in the US and Britain were not primarily a response to unemployment and disappointing economic performance since the financial crisis, mass migration, or the threat of Islamist terrorism. This conclusion follows from the fact that France has suffered from much higher unemployment and a longer post-crisis recession than either the US or Britain, as well as experiencing more problems with terrorism and Islamic militancy.

If German voters in the autumn follow the French and Dutch in moving back toward the political center, immigration will also be discredited as the root cause of populism. After all, Germany has experienced a much larger influx of foreigners than Britain or the US. Instead, populism will look more like an Anglo-Saxon phenomenon, motivated less by immigration and economic policy than by conservative cultural attitudes among Trump and Brexit voters and the unusual demographic alliances pitting old against young, rural against urban, and university graduates against less educated voters in the US and Britain.

The economic implications will also be far-reaching if the center holds in Europe. The European Union is a bigger trading partner than the US for most emerging economies. And the euro is the only real alternative to the dollar as an international currency. So the EU’s continuing commitment to a philosophy of open trade, globalization, and carbon reduction could be sufficient to prevent a paradigm shift toward protectionism and climate-change denial that seemed almost inevitable with Trump’s election.

Such a change in global leadership would require a dramatic improvement in Europe’s economic performance. Fortunately, that outcome can be expected if voters reject populist politics in France and Germany. The EU has suffered a prolonged economic slump since the 2008 financial crisis, largely because the German government vetoed the kind of monetary and fiscal stimulus that helped to pull the US out of recession in 2010. Germany’s veto on US-style quantitative easing was also the main reason for the near-collapse of the single currency in 2012.

But a dramatic change to European policy and economic conditions occurred in March 2015, when the European Central Bank belatedly launched a bond-buying program similar to America’s, but on a far larger scale. By purchasing almost three times the total net issuance of eurozone bonds, the ECB effectively circumvented eurozone rules and began to monetize Europe’s government deficits, as well as creating a mutual support system between strong economies such as Germany and weaker ones like Italy and Spain.

The ECB’s actions quickly reversed the fragmentation of the European banking system and eliminated fears of a euro breakup. The immediate result was an upsurge in confidence among both businesses and consumers.

By last summer, most of Europe was already enjoying a decent recovery, when renewed fears of disintegration, this time caused by politics, not finance, suddenly overwhelmed the improvement in economic conditions. Brexit and Trump created an expectation that Europe would be the next domino to fall to populism in the looming Dutch, French, and German elections.

Of course, this possibility still cannot be dismissed, which is why international investors remain cautious about Europe. But if the populist victories that worry investors do not in fact happen, a surge of business and consumer confidence will send waves of investment flowing into the eurozone.

The key event will be the final round of the French election on May 7. If this results in a victory for Emmanuel Macron, the centrist front-runner, France will embark on a path leading to at least a modicum of economic reforms.

That, in turn, will create a much more cooperative relationship between France and Germany. Both main candidates for German Chancellor are eager to rebuild post-Brexit Europe by strengthening the Franco-German axis – and the start of a French reform process would reassure German voters that their government, by easing EU austerity, would not merely be pouring money into a bottomless pit.

This brings us to the ideological implications if centrist forces win and economic recovery accelerates in Europe this year. In the immediate aftermath of the global financial crisis, the European “social market” model of capitalism seemed like a logical alternative to the Thatcher-Reagan market fundamentalism that had broken down after 30 years of global dominance.

Indeed, President Barack Obama moved the US toward greater government activism in macroeconomic management, financial regulation, environmental policy, and health care.

Paradoxically, however, Europe moved in the opposite direction. Under German pressure, the EU became the last bastion of monetarism, fiscal austerity, and the “disciplining” role of financial markets. The result was the near-fatal euro crisis of 2010-2012.

If this year’s elections result in a centrist French president and a revival of Franco-German cooperation, the EU’s unexpected infatuation with market fundamentalism will probably end. Europe will enjoy a better, more sustainable, and socially inclusive economic recovery than the US under Trump. If this happens, the rest of the world may again start to see the EU as a source of inspiration and a model.

Regardless of the result, Turkey will continue rising as a regional power.

By Jacob L. Shapiro

On Sunday, Turkey will hold a referendum on constitutional changes that would increase the president’s power. The media’s narrative about this referendum is that a vote in favor of the changes would amount to the death of Turkish democracy. Some have even suggested that Turkish democracy is already dead and the referendum is the final nail in the coffin. Opponents of the changes believe a “yes” vote would elevate President Recep Tayyip Erdoğan to the position of dictator in chief, and that Turkey’s turn to the dark side would be complete.

This line of thinking has one small problem. The decision to change the Turkish government’s structure will be based on a democratic vote. Dictators and authoritarians come in many shapes and sizes, and some have come to power by democratic means before crushing all opposition. But rarely are dictators concerned with the finer points of constitutional law and democratic legitimacy. If Turkish citizens vote in favor of the proposed changes, Turkey’s parliament will retain the right to impeach the president with a two-thirds majority. A “yes” vote on Sunday would not be a coronation; it would be a democratic expression of the will of the Turkish nation, or at least the portion that decides to vote.

“EVET” (Yes) campaign banners showing the portrait of Turkish President Recep Tayyip Erdoğan are seen hanging on April 10, 2017 in Rize, Turkey. Chris McGrath/Getty Images

People may not like what Erdoğan has to say, but he is campaigning to the Turkish people, not forcing them into the voting booth at gunpoint. This is a real vote, and there is no better indicator of this than the fact that polls are split on which side will win. Reuters, for instance, reported last month that an ORC poll showed around 55 percent of Turkish voters would cast ballots in favor of the changes. Polling company Gezici told Reuters that none of its 16 polls saw a victory for the proposed amendment. The only thing that can be said with certainty is that the vote will be close. If this is not democracy, it is unclear what is.

Ultimately, this referendum is about politics, and superficial politics at that. Turkey is a society in transition and a country emerging as a regional power. Such processes do not unfold smoothly. Think of France on the eve of the French Revolution. Its economy was in shambles, and it had recently lost the Seven Years’ War (and most of its colonial possessions in North America). But French society was transforming from the inside while foreign challenges were pressing on it from the outside. The result was a bloody revolution that featured beautiful declarations on the rights of man alongside liberal use of the guillotine. Those who would criticize Turkey for abandoning liberal democracy by voting to give its president increased powers want liberal democracy only if it produces the outcome they prefer. They forget how liberal democracy came to the West in the first place.

Some will say this is a misreading of Turkey’s assault on the basic principles of liberal democracy. They will point to jailed journalists, fired academics and the Kurdish situation in the southeast as evidence of Turkey’s fall from grace. Some of these concerns are valid. However, it is also true that, a year ago, a significant faction in the Turkish military was planning a coup against Erdoğan and the democratically elected government. If the U.S. military attempted a coup against the U.S. president, a series of arrests and investigations undoubtedly would follow to protect the institutions of the state. Erdoğan may very well be using the attempted coup to consolidate his power bases and to rebuild Turkey’s institutions with people he can trust. But this does not make him evil, nor does it make Turkey a budding totalitarian regime.

Of course, in a country like the United States, the military has never attempted a coup against the civilian government. The difference between a country like the U.S. and Turkey is their geopolitics. The modern Turkish republic was founded in 1923. It was both a weak power and an heir to a proud and illustrious imperial history that went up in flames after the Ottoman Empire collapsed following World War I and lost some of its former territories. Political power in the ghost of the country that emerged in 1923 was centered in Istanbul, even if the capital was Ankara, and Anatolia was weak, underdeveloped and underrepresented. Military officer Mustafa Kemal Atatürk became the country’s leader. For a long time, the military was the dominant force in Turkish politics, and it would intervene when it felt it was necessary.

The rise of Erdoğan and the Justice and Development Party is part of the evolution of the weak, defeated country that was created in 1923. The current constitution, which sets out the framework for the Turkish government, was adopted in 1982 under a military regime that took power in the 1980s coup. During this decade, Anatolia, which had not been a major priority in either the Ottoman era or in the first decades of the Turkish republic’s existence, saw benefits from the Turkish government’s economic and political reforms. The influx of capital and industry into Anatolia created a new class of Turkish citizens, who had grown up more conservative and religious than the elites in Istanbul but preferred a more laissez-faire economic approach. The old power centers encountered the periphery in a way they never had before. This divergence between the two groups changed Turkish politics and continues to shape them today.

As this internal transformation has taken place, Turkey’s power as a nation has also increased. Turkey has the largest GDP in the Middle East. Only Saudi Arabia’s economy is comparable, and Saudi Arabia is in deep trouble. Geopolitical Futures has written extensively in the last year about the Saudi regime’s weakness: It is almost literally a castle made of sand built on a foundation of oil and little else. According to the World Bank’s latest figures, Turkey’s economy is almost double the size of Iran’s, yet Tehran continues to garner an inflated level of world attention relative to its power. From a military perspective, Turkey has one of the largest armies in the Middle East. Although the army was in need of reforms and modernization even before the attempted coup, Turkey’s ability to project military force is greater than most of its neighbors’. Its potential far outstrips the potential of other countries in the region.

For a while after 1991, Turkey was content to develop slowly and methodically. It pursued a policy of “zero problems” with its neighbors. But the Middle East has reverted to its normal state, somewhere between civil war and general chaos. The Syrian civil war and Iraq’s instability are not abstract issues for Turkey: They are happening on Turkey’s borders. Spillover violence is a fact of life for the country, as are the millions of refugees fleeing Iraq and Syria. Iran is attempting to assert its interests to the extent that it can, and Russia – one of Turkey’s historical enemies – is playing around in the region with limited force but in direct opposition to Turkey’s interests.

When Turks go to the polls on Sunday, they will be making a collective decision about the type of government they want. A “yes” vote may very well mean that Erdoğan will become a strong, authoritarian-style president until as far out as 2029. At that point, he would have to step aside due to term limits or his inability to continue governing, or change the constitution again. A “no” vote could mean Erdoğan’s power will wane, but it could also mean that he will remain powerful within the context of the current system or that some new force will rise in Turkish politics. Geopolitics is not sentimental about personalities. It dictates that Turkey will rise, not the name of the person who will lead it.

Regardless of whether Erdoğan stays in power or another leader takes over, Turkey will continue maturing as a nation and becoming a regional power surrounded on almost all sides by unenviable threats. If the referendum passes, Erdoğan’s authority will still be subject to checks and balances, but none will be as determinative as the geopolitical constraints forcing Turkey back into the pantheon of the world’s major powers. On that, Turkey doesn’t get a vote – and its increase in power will define the country’s future more than any referendum can.

The veteran strategist thinks the market is “vulnerable to a correction.”

By Byron Wien

Donald Trump swept into office on a populist wave. His promise of greater growth for the United States economy resonated with a large part of those disappointed with stagnant wages and a lack of opportunity.

He said he would bring manufacturing jobs back and provide better health care coverage at a lower cost. All politicians know that they can make promises during a campaign that voters will not remember or that they will understand an administration not being able to accomplish, but the new team in Washington has an ambitious agenda and is off to a slow start. Trump has said that he expects to bring real GDP growth up to 4%, but he will be doing well if his stimulative initiatives result in 3% growth. We have been below 2% since the recovery began in 2009, the slowest comeback in the post-World War II period.

As I see it, there are three impediments standing in the way of significant progress. The first is the difficulty of getting an effective team in place and working out a set of operating procedures within the White House, with Congress and with our traditional foreign allies. The President has had some disappointments in assembling his team – first with the resignation of his National Security Advisor over relations with Russia and second with the recusal of his Attorney General in matters related to Russian involvement in the U.S. election. On the heels of this setback, the Trump tweet alleging that former President Obama tapped the Trump Tower telephones during the campaign distracted the White House from dealing with its pro-growth initiatives. The president has not backed down from his view. This first phase is largely behind us now with most of the cabinet positions filled.

An imperative for the White House has been to get going on its legislative agenda. The electorate and the investment community are counting on it. Donald Trump put repealing the Affordable Care Act first. This was probably a mistake similar to the one both Barack Obama and Bill Clinton made when they tackled health care right away when they took office. Creating a program of universal coverage that both individuals and the government can afford is a monumental task and the present Obama program has flaws that would require changes no matter who was in the White House. In my view, the Trump repeal and replace program failed for three reasons.

First, the so-called Freedom Caucus of 30 conservative Republican Congress people was dissatisfied with some of the mandated health care benefits and believed that the problem of rising premiums was not adequately addressed. They were never going to be persuaded to vote for the legislation in its present form.

The bill had some creative solutions to major health care problems, such as the establishment, with Federal support, of high-risk “pools” for people with pre-existing conditions. But the bill had too many critics among both moderate Republicans and Freedom Caucus members. As a result, the House Majority Leader fell short of the 216 votes he needed and he pulled the bill rather than face the humiliation of having it turned down in a floor vote.

The second reason it failed was that too many people were either going to lose coverage, have it diminished or see their health insurance costs rise significantly. The Affordable Care Act has brought the percentage of uninsured Americans down from 18% to 11%. Approximately 20 million additional people are covered and many of them (perhaps 15 million according to the Brookings Institution) would lose coverage under the Ryan plan. That’s why there was no Democratic support.

The third reason was that the House leadership and the administration failed to go through the tedious effort of explaining the bill and selling it to Congress. This takes time, but the administration seemed to be in a rush to move on to other items on the agenda. I hope this is a lesson learned and it won’t be repeated.

The second challenge will be tax reform and this has only been made more difficult by the failure of the health care bill. Donald Trump promised a reduction in taxes for individuals and corporations, while keeping the process “revenue neutral,” meaning it will require no increase in the budget deficit. If the top brackets for both corporations and individuals were brought down to 20% and 25%, respectively, the loss of revenue would be considerable. The blended rate that corporations actually pay is probably close to 27%, so the gap is not as great as it appears. The cut to the top bracket for individuals represents a more severe revenue loss, although at least some of that can be retrieved by limiting deductions. Creating a limit on deductions would hurt big earners who live in states with high local income taxes like New York and California, but these states voted for Hillary Clinton and Trump has little compassion for them (although Republican representatives in these states might have more).

Limiting deductions will not solve the “revenue neutral” problem, however, and major funds will have to be found elsewhere. The major potential sources are the elimination of interest deductibility and the border adjustment tax. The real estate industry is among those that would be hurt considerably by the former, and the retail industry would be hurt seriously by the latter. Both groups are vociferously making their views heard in Congress. The result is that the tax reduction plan is moving forward very slowly. Because lower taxes were going to be one of the pillars of bringing economic growth from 2% to 3%, any delay works against Trump’s objective of improving incomes and creating jobs this year.

None of this was unexpected. We all knew that progress would be slow and frustrating in Washington, but it is especially daunting for a President who is impatient and new to the political process. But the American people can also be impatient. They voted for him because they were tired of a government that accomplished little and they yearned for change. The longer change is delayed, the more dissatisfied the electorate is likely to be. Campaigning, with its roaring crowds and debate confrontations, is finite and easy. Governing, with its frequent meetings and continuous negotiations, is endless and hard.

Beyond tax reform, the Trump budget is clearly testosterone-oriented, as David Brooks noted. There are increases for Defense, Homeland Security and Veterans Affairs and significant cuts to the Environment Protection Agency, the State Department and Agriculture. The objective is to keep America safe and strong right now while long-term problems have been shifted to the back burner. There is no effort, for example, to address entitlements. But in the 2040s, the percentage of the U.S. population over age 65 as compared to the population between the ages of 15–64 will rise to 34%. It is less than 20% now. Who will support these people?

The new administration is fortunate that the natural momentum of economies around the world is reasonably strong. The payroll report for the U.S. in February was positive, clearing the way for the Federal Reserve to raise interest rates in March, and we are likely to see at least two more rate hikes this year, assuming the stock market and the economy continue to move forward. Consumer net worth rose 8.6% in the first quarter of 2017, indicating that the buying power exists for a growth rate of 3%, but the problem is that the distribution of wealth is very uneven. Too much money is in the hands of the top 10% and their propensity to spend is relatively low. The middle 50% have not seen their real incomes grow since 2000 and they are not likely to become vigorous consumers until the tone of the economy improves and there is a greater prospect of wage increases. Recently, however, wages have been rising, with average hourly earnings showing a 2.8% increase in February. This raises the question of inflation, which is ticking up, but is not yet at worrisome levels. Wages are high enough to bring some people back into the workforce, and the participation rate has risen to 63%, which is a favorable development. The participation rate had dropped from 66% prior to the 2008–09 recessions to 62% at the trough.

The Bloomberg Consumer Comfort Index is back to its 2007 level, indicating that the mood for buying is ripe, but it may require a catalyst to get it going. A reduction in taxes might do the job. Initial unemployment claims are lower than they have been in more than 40 years. The rig count is up sharply, indicating the energy industry has started drilling again, which should improve capital spending generally.

Railcar loadings have also turned up, housing data is positive and leading indicators are rising. The data from Europe shows growth should approach 2% and China, India and Japan are demonstrating a favorable pace in their economies. A U.S. recession appears at least two years away, so even if the new administration accomplishes nothing on the legislative front, the economy is likely to be okay. However, Trump is counting on showing the American people he has made a difference and additional stimulus will be required for that to happen.

As I said at the beginning, there are three impediments to the Trump administration making significant economic progress in its first year. The first is assembling a team and getting it working effectively. The second is getting his legislative agenda moving, and he has already run into trouble. The final impediment is structural problems in the U.S. economy.

The principal factors producing growth are increasing population and productivity. Population in the U.S. has been increasing at only 1% annually and productivity at less than 1%. As a result, most academic economists, most notably Robert Gordon of Northwestern University, believe growth is likely to be less than 2% going forward. Goldman SachsGS in Your ValueYour ChangeShort position and others believe the productivity numbers are understated by about 0.5% because of the difficulties of factoring in the contribution of technology, primarily software, to productivity improvements. Others believe that the hollowing out of the middle class as a result of globalization and technology has limited growth by reducing buying power. In any case, the supply side stimulus provided by tax cuts, reduced regulation and infrastructure spending would appear to be needed to achieve 3% growth.

There are, however, other problems. We all know that per capita income increases have been disappointing as a derivative of low real GDP growth. Ned Davis Research has done a study of real disposable income on a 10-year percentage change basis. This measure has declined sharply from 1970 (the end of what Robert Gordon refers to as the “special century”), when it was 47%, to the current level of 10%. At the same time the savings rate has declined from the 1960s, when it was in the teens, to 3% today. Personal consumption expenditures have increased as a percentage of disposable income from 81% in 1970 to 91% now as consumers have borrowed to maintain a comfortable lifestyle. In addition, making major improvements in productivity and GDP is difficult because of other secular forces like the breakdown of the family structure, increased opiate usage among younger people, the growing prison population, and the large numbers of people on disability. Where are the workers going to come from to enable the U.S. to grow faster? I am grateful to Commentary magazine for articles by Nicholas Eberstadt and James Pethokoukis providing background on factors affecting American growth.

There are two other secular factors that could have a profound effect on growth. One is artificial intelligence, which could diminish the number of people working in white collar jobs. This could be a case of increasing productivity but with the attendant effect of reducing the income of a significant part of the population. The second is a potential decline in entrepreneurship. According to the Financial Times, since the late 1970s start-ups as a percentage of all firms have fallen by more than half and the number of workers at these firms has fallen by three-fourths. A study by the Kaufmann Foundation has found that high-impact growth entrepreneurship has largely recovered from its 2008–09 recession slump. Given that small business start-ups are key to economic growth, the improvement in this trend is important.

One question that has to be raised by the failure to pass the health care bill is whether there is too much anarchy in Congress for any major legislation to get through in spite of the Republican majority. This has to make one a little apprehensive about how quickly the economy will improve to the 3% growth level. This could put my estimate of earnings for the Standard & Poor’s 500 in jeopardy and mean that the stock market is ahead of itself and vulnerable to a correction. I still think higher highs are ahead of us, but they may occur later than I originally thought. It will also be important to see how Donald Trump deals with legislative adversity, disagreements with foreign leaders over trade and defense, and geopolitical confrontation (North Korea). These factors will play a critical role in investor attitudes and market performance.

Wien is vice chairman of Blackstone Advisory Partners, a subsidiary of the Blackstone Group.Your ValueYour ChangeShort position

In Part One of this article I analyzed the similarities of Isaac Asimov´s Foundation Trilogy to Strauss & Howe´s Fourth Turning, trying to assess how Donald Trump´s ascension to power fits into the theories put forth by those authors. In Part Two of this article I compared and contrasted Donald Trump´s rise to power to the rise of The Mule in Asimov´s masterpiece. Unusually gifted individuals come along once in a lifetime to disrupt the plans of the existing social order. Despite the forlorn hope Donald Trump or some other savior can reverse our course, decades of missteps, dreadful decisions, ineffectual leadership, and unconcealed treachery have paved a path to destruction for the American Empire.

American Empire Crumbling

"Mr. Advocate, the rotten tree-trunk, until the very moment when the storm-blast breaks it in two, has all the appearance of might it ever had. The storm-blast whistles through the branches of the Empire even now. Listen with the ears of psychohistory, and you will hear the creaking."

The elitist ruling class gathers at Davos and their secretive Bilderberg meetings to plot the course of the world, divvying up the vast wealth plundered through their globalization schemes, and developing the newest propaganda narrative to keep the global masses confused, distracted, and powerless to fight back. Despite their wealth and power, an epic level of hubris is always their undoing.The normal people have begun to fight back but, like the rotten tree trunk Galactic Empire, the "mighty" American Empire, forged from the debris of two world wars, awaits the storm blast which will expose its true level of rot. The American Empire is crumbling under the weight of military overreach; the burden of unpayable debts; currency debasement; cultural decay; civic degeneration; diversity and deviancy trumping common culture and normality; pervasive corruption at every level of government; and the failure of shortsighted leaders to deal with the real problems.You can hear the creaking as the winds of this Fourth Turning winter howl through the branches of this dying empire. Trump may have forced the Deep State Second Foundation to reveal itself as they seek to destroy him, but the relentless decline of the American Empire continues unabated. Tinkering around the edges of a healthcare system designed to benefit mega-corporations and the Deep State will do nothing to reverse or even delay the decline.Slowing the growth of government when the national debt is already $20 trillion and headed to $30 trillion within the next decade won´t cure the rot in our tree trunk. Completely ignoring the $200 trillion of unfunded welfare state liabilities helps accelerate the inevitable collapse of this empire. Cutting taxes while expanding the war making machine known as the military industrial complex does nothing to reverse what is already in motion.

In addition to the absolutely quantifiable reasons why the American Empire will collapse, there are demographic, cultural, and societal trends which will contribute dramatically to the fall. The rapidly aging populace, with 10,000 Americans per day turning 65 years old, is the driving force towards national bankruptcy, as this inexorable demographic tsunami sweeps over the fraying fabric of welfare state promises.

The onslaught of illegal immigrants and purposeful execution of a plan by the effete liberal elite to weaken our common American culture through the insertion of Muslim refugees into our communities, is undermining the shared values which built the country. The immigrants who built this country assimilated, learned the language, worked hard, and adopted our common culture. The hordes invading America at this time hate our values and refuse to assimilate. This Soros funded effort to create diversity havoc throughout the world is part of the globalization one world order plan.As Europe disintegrates under the unrelenting wave of violent refugees creating upheaval, chaos, and spreading religious zealotry through viciousness, the next target is the mighty American Empire. Fighting in the streets between the normal law abiding Trump supporters and the Soros funded, draped in black, flag burning, social justice warrior criminals has begun. Widespread societal strife is just around the corner.When the next financial crisis, created by the Deep State to further their plans, destroys the remaining wealth of the barely surviving middle class, all hell will break loose in the streets.The 86% of the country occupied by red state, gun owning, Trump supporters will openly go to war against the condescending, left wing, violence provoking blue state liberals. Blood will be spilled in copious amounts. It always does during Fourth Turnings.

Will Trump´s reign resemble the reign of The Mule? The Mule´s conquest was astonishingly fast. He defeated the Foundation and established the Union of Worlds after only five years. The unpredictability of his arrival and rare mental talents befuddled the Foundation. Then he inexplicably paused in his campaign of conquests. Instead he launched repeated expeditions in search of the Second Foundation. The mysterious Second Foundation inhibits The Mule from further conquest as he is consumed with finding their location and paralyzed with fear they can defeat his mentalic powers.The Second Foundation comes briefly out of hiding to face the threat of The Mule. It is revealed to be an assemblage of the most intelligent humans in the galaxy, descendants of Seldon´s psychohistorians. Using the force of its strongest minds, the Second Foundation ultimately wears down the Mule. They succeed in defeating the Mule, transforming him into a relatively harmless individual, lacking ambition, and no longer a threat to the Seldon Plan. His destructive posture is adjusted to a benign one. He returns to rule over his kingdom peacefully for the rest of his life, without any further thought of conquering the Second Foundation.Trump has had an astonishingly fast rise to power. He went from frivolous reality TV star to the most powerful leader on earth in the space of two years. With his clownish exploits and rhetoric, he rose to power through being underestimated every step of the way - infuriating his many enemies who miscalculated his level of political savvy and persuasion skills. Unless he is overthrown by the Deep State or killed, he will be able to put his imprint on the nation for at least four years and possibly eight.His first two months in power will likely reflect his entire presidency. The Washington establishment and sinister Deep State players will attempt to thwart Trump´s every move. They have already impeded his immigration controls and attempt to repeal and replace Obamacare, while using their illegal surveillance state techniques to undermine his administration.

The Second Foundation, through unyielding pressure and generating fear of the unknown into the mind of The Mule, was able undermine his plans of conquest and turn him into a non-disruptive, toothless, nonthreatening, passive figurehead. As Trump´s best laid plans are obstructed, agenda foiled, and legislation hindered, will his enthusiasm for governance wane?The surveillance agencies who are supposed to act on his behalf are clearly trying to subvert his presidency. Leaks and fake news designed to sabotage the credibility of Trump and his administration will continue. Will the fear of retribution from mysterious surveillance state operatives convince Trump to fall into line and become a submissive lackey, no longer making waves for the Deep State?I have no illusions Trump is some sort of savior who will reverse decades of political corruption, currency debasement, financial market rigging, global military missteps, cultural decay, pervasive entitlement mindset, and out of control espionage operatives. At best, he will slow some aspects of the decline over a short time frame. More likely, he will provoke his enemies to such an extent the decline will be accelerated due to civil and/or global war braking out. The oncoming financial collapse will further push the country toward the brink. It´s not a matter of if, but when. And the when is closer than most people imagine.The seeds of destruction for the American Empire were planted as Ben Franklin departed the Constitutional Convention two hundred and thirty years ago responding to a question from Mrs. Powell that they had given the people a republic, if they could keep it. The seeds were slow to take root, but the transition from republic to democracy insured long-term decline as the people voted for more benefits, paid for by their fellow citizens and financed by debt.With the secretive creation of the privately owned Federal Reserve in 1913, the debasement of our currency was begun. The true birth of the American Empire occurred with surrender of Germany & Japan at the conclusion of World War II. As the only major power not in physical and economic shambles, America dominated the world until its hubris kicked in during the late 1960s with the birth of the welfare/warfare state financed by debt. Closure of the gold window in 1971 sealed our fate.

We´ve crossed our Rubicon with the preservation and expansion of empire bankrupting the nation.

We just refuse to admit it. It´s already a done deal. Default is baked in the cake. It´s happened to the Greeks, Romans, Spanish, Dutch, British, and many other civilizations throughout history. The path to destruction is always the same because the actions of humans in large numbers are entirely predictable. The American Empire has exploited all of the productive people, leaving nothing left to invest in the future. Investment by corporate America today constitutes greedy CEOs buying back their stock to boost earnings per share and share price in order to earn multi-million dollar bonuses.The globalization scam was the last dying gasp to exploit the dwindling resources of the planet and the people. There is nothing left to fund the bread and circuses keeping the ignorant masses distracted, amused, and fed. The monetary machinations of the Federal Reserve have reached their limit. Economic crisis is inevitable before this Fourth Turning runs its course.The economic meltdown will likely result in the final breakup of the American empire. The best laid plans of Deep State billionaire intellectuals will be for naught. The law of large numbers will win again. All empires eventually die, and life will go on, unless the psychopaths controlling this country blow the planet up rather than relinquish their wealth and power. Is history already written or do we as individuals have a say?

"Throughout you have invariably relied on authority or on the past - never on yourselves."

"But Empire building also bears the seeds of its own destruction. The closer a state comes to the ultimate goal of world domination and one-world government, the less reason is there to maintain its internal liberalism and do instead what all states are inclined to do anyway, i.e., to crack down and increase their exploitation of whatever productive people are still left.

Consequently, with no additional tributaries available and domestic productivity stagnating or falling, the Empire´s internal policies of bread and circuses can no longer be maintained. Economic crisis hits, and an impending economic meltdown will stimulate decentralizing tendencies, separatist and secessionist movements, and lead to the break-up of Empire. We have seen this happen with Great Britain, and we are seeing it now, with the US and its Empire apparently on its last leg."

If you know the other and know yourself, you need not fear the result of a hundred battles.

Sun Tzu

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.